Direct taxes are based on income and wealth, if they are excessive may discourage savings and kill the incentive to work hard. It provides tangible benefits, but some drawbacks as well. The great disadvantage of a direct tax is that it pinches the payer.
Disadvantages of Direct Tax
- Direct tax gives a mental pinch to the taxpayers as they have to curtail their income to pay to the government. Hence, such taxes are unpopular in nature and are generally opposed by the taxpayers. Nobody can help to feel the pinch.
- Taxpayers feel inconvenience as the government imposes tax progressively. If taxes are progressive, the rate of progression has to be fixed arbitrarily; and if proportional, they fall more heavily on the poor. Moreover, it is very inconvenient to pay these taxes as they are collected in lump-sum.
- The tendency to evade tax may increase to avoid a tax burden. The assessee can submit a false return of income and thus evade the tax. Tax evasion in effects leads to corruption also.
- Many business ventures are not undertaken on the ground that a large part of the income earned will have to be given to the government in the form of taxes. They are uneconomical when the tax base is narrow.
- It is expensive for the government to collect taxes individually. In practice, it is difficult to assess the income of all classes accurately.
Direct taxes have been a chief cause of hurting job performances. When a man directly bears the burden of a tax, he tries to know how the government spends that money. If the taxes are too heavy, they discourage saving-sand investment. In that case, the country will suffer economically.
